PATTNI SPARKS A STORM WITH THE SALE OF MARSHALLS SHARES

Controversial businessman Kamlesh Pattni has walked into yet another storm after a bank claimed ownership of millions of Marshalls East Africa shares he recently sold at the Nairobi Securities Exchange.

Oriental Commercial Bank said in a public notice that the shares Mr Pattni sold early this year are held as security for a loan and should not have been traded.

It was not clear how Mr Pattni managed to sell the shares since Oriental Bank remains in possession of share certificates — which are evidence of ownership.

Marshalls Investment Limited, a company owned by Mr Pattni, submitted the certificates to the bank as collateral for a loan it took when the bank traded as Delphis Bank.

On Thursday, Oriental issued a caution to the public that any transaction involving Marshalls Investments Limited’s shares would not be effected without its consent.

“Oriental Commercial Bank holds as security the following shares in Marshalls (E.A) namely 1,353,994 shares as per share certificate number 3277 and 3,146,006 shares as per share certificate number 3009 which are pledged to it by Marshalls Investments Limited,” read a statement from the bank.

“Take notice that any transfer of the said shares or issuance of any duplicate certificates in respect thereof may not be effected and will not be recognized or accepted without the knowledge and written consent of the bank.” 

But the warning appeared to have come too late because Mr Pattni appeared to have completed the sale of his 50.7 per cent stake in the car dealer to a consortium of investors nearly two months ago.

A senior officer at Oriental Bank said the notice was in response to Mr Pattni’s announcement of intention to sell his stake in the company earlier this year.

He said the bank was not aware that transactions relating to the shares had been executed and learnt of it from a story published in Thursday’s edition of the Business Daily. The bank’s insistence that it remains in possession of the original share certificates has raised questions on the legality of the sale and authenticity of the documents that Marshalls Investment used to prove its ownership.

“We were shocked when we saw the list of top investors in Marshalls East Africa.

This must have been some under-the -table dealing and we have instructed our lawyers to deal with the matter,” said the Oriental Bank officer who sought anonymity.

The officer said the loan that was secured by the shares was not being serviced and efforts to dispose of them to recover its cash had been hampered by a pending High Court case pitting Mr Pattni and his long standing business rival, Ketan Somaia.
The total outstanding loan amount could not be immediately established due to the long period it had been pending.
Delphis Bank was renamed Oriental Bank in 2002, four years before Mr Pattni claimed ownership of Marshalls Investment Limited after buying out Mr Somaia. This implies that Mr Pattni inherited the debt from his business rival who was a major shareholder in Delphis Bank.
The bank was one of the lenders to Goldenberg International, the company associated with Kenya’s biggest financial scandal of the early 1990s.
Goldenberg, owned by Mr Pattni, is the company that fraudulently obtained billions of shillings from the Treasury in false gold exports compensation.
A commission of inquiry into the Goldenberg scandal found that Delphis defrauded the Central Bank of Kenya of billions of shillings in fake export compensation claims. CBK is still battling it out with Oriental Bank in court.
Last year, Marshalls received a Sh401 million debt waiver in favour of a loan that Mr Somaia took from KCB.
Directors and executives friendly to Mr Pattni successfully argued in court that the loan was irregularly obtained when Marshalls did not have a board to approve the transaction.
By the end of March 2010, Marshalls East Africa’s debt at KCB had grown to Sh808 million.
The waiver helped to brighten Marshalls’ poor performance for that year – the company having provided Sh469 million as an expense on its books pending the outcome of the court case.
Last year, Mr Pattni sold a 15 per cent stake in Marshalls East Africa that earned him more than Sh30 million.
He then issued a notice of intention to sell additional seven million shares or 48.6 per cent stake in the company in March this year.

Latest regulatory filings to the Capital Markets Authority (CMA) show that Mr Pattni’s investment vehicle, Marshalls Investments Limited, has disappeared from the list of top shareholders while six existing owners increased their stake by 22.7 per cent.

Three new investors — Global Ltd, Azmaveth Investment and Kobos Ltd — entered the car dealer’s top shareholders’ list with a combined stake of 28.4 per cent.
Sources close to the share transaction said it was concluded between April and May and came as a surprise because analysts had expected that Mr Pattni would sell his stake to one of the global car dealers angling for an entry into the Kenyan market.
Woodside Ltd, Abner Holdings, Ahoh Investment, Kenaz Holdings, Aijalon Investments, and Ramoth Holdings are the existing shareholders whose stakes rose by between 1.8 per cent and 8.1 per cent.
Mr Pattni and Mr Somaia went to court in 2006 after Mr Pattni claimed that Mr Samoia had refused to hand over control of Marshalls to him even after he acquired a controlling stake in the firm.
The ownership war spilled over to the firm’s AGM, causing the warring shareholders to hold parallel meetings. The rivalry came to an end two years ago when the courts ruled in favour of Mr Pattni.
Investors have taken notice and the company’s share has become the least sought-after at the Nairobi bourse and goes for weeks without trading.
Marshalls’ share price stood at Sh12.3 yesterday and has shed 7.8 per cent in the past 12 months.

UNLESS COMMERCIAL BANKS THEIR GREED, KENYA'S ECONOMY WILL CHOKE

Banks in this country are very greedy.  How else do you explain the fact that they are unwilling to bring interests rates down even after the Central Bank of Kenya recently brought down the Central Bank Rate by a significant margin?
 
I am not in the habit of cramming this column with statistics and figures. Statistics will make you sound clever and learned. But when your aim is to provoke informed debate and influence public policy, cramming too many numbers in a column like this can be counter-productive.
You end up crowding out the less numerically- inclined segments of society from participating in the conversation. I want to introduce just a few important pieces of statistics to substantiate my assertion that commercial banks in this country are greedy.
The first piece of statistic I wish to rely on is the Treasury Bill rate. Why is the movement of this rate important in this debate? Because this is the benchmark that all commercial banks use to price loans.
Allow me to explain. Literally, every week, the government is in the market borrowing money by issuing Treasury Bills. And, the biggest buyers of Treasury Bills are commercial banks. Put another way, commercial banks collect money from the public and then lend some of it to them at some profit margin.
Because lending to the government is risk-free, banks price the loans which they lend to businesses and members of the public off the Treasury Bill Rate.
Going by this logic, lending rates should always come down in tandem with the Treasury Bill Rate. And, how has this bill behaved? The rate has fallen from a peak of 21 per cent in January 2012 to below 11 per cent in June this year.
When the Treasury Bill Rate began the downward trend around March, commercial banks said they would not reduce lending rates because the inflation rate was still too high. High lending rates were a reflection of inflationary expectations, they pontificated.
Which brings me to the second piece of statistics I wish to rely on to maintain the argument that commercial banks in this country are greedy — the inflation rate. How has inflation behaved? It has fallen from a peak of 19.7 per cent in November 2011 to 10.5 in June this year.
When the inflation rate started falling several months ago, commercial banks argued that they would not reduce lending rates because the Monetary Policy Committee of the Central Bank of Kenya had not reduced the Central Bank Rate, also known as the signalling rate.
Just the other day, the Monetary Policy Committee lowered the Central Bank Rate from 18 per cent to 16.5 per cent, signalling to commercial banks to ease lending rates.
The response from the banks has been mute, to say the least.  Granted, some of the banks have responded by cutting base rates. You still don’t see strong   commitment to bringing lending rates down.
I know of several businessmen who have frozen new projects because of high lending rates. Our people are paying too much for loans. High lending rates are literally choking growth as evidenced by recent statistics, which show that the gross domestic product fell to 3.5 per cent in the first quarter of 2012 compared to 4.9 per cent in the same period last year.
Commercial banks will keep giving excuses and shifting positions. They argue that they took too many expensive deposits, which they have to clear from their books first.
Yet we all know that a substantial proportion of the deposit base of commercial banks in this country is composed of current accounts on which they do not pay interest.
The truth of the matter is that the average cost of funds is much lower than they tell us. We were told that the introduction of credit reference bureaus would make things better. It has not happened.

TEN BUSINESS TIPS FROM KENYANMULTI-MILLIONARE, DJ CHRIS KIRUBI

Chris Kirubi is a complex man. One of Africa’s richest and most successful businessmen, he’s that rare blend of Donald Trump, Jeffrey Sachs, Richard Branson and American music star DJ Khaled, in African skin. In business, he’s got the cunning and clout of Trump, the economic intellect of Sachs, the rebellion of Branson, and the musical inclinations of hip-hop act DJ Khaled.
Chris Kirubi with Richard BransonHere’s the reason why: In between running one of Africa’s largest privately held business conglomerates, delivering countless keynote lectures during frequent international economic gatherings, writing a weekly business column for a daily newspaper and mentoring young Kenyan entrepreneurs, Kirubi still finds time to make cameo appearances in Kenyan hip-hop videos, movies, and even hosts a rock show on Capital FM, a Nairobi radio station he owns. He’s the DJ!
Kirubi sits atop one of East Africa’s most successful business empires. His business interests are varied and far reaching. He is the chairman and founder of privately-held Haco Tiger Industries, East Africa’s largest manufacturers of some of the continent’s leading consumer brands in stationery, personal care and home care products. He also owns the International House, one of Nairobi’s landmark skyscrapers, and holds the largest stake in Centum Investments, a leading private equity firm listed both on the Nairobi and Uganda Stock Exchanges, among other holdings.
The Harvard-trained tycoon is one of the most tech-conscious and social media-savvy businessmen on the continent. He keeps a Twitter and Facebook account, blogs frequently, and was reportedly one of the first people in Kenya to own an iPad.
I actively follow the wealthy tycoon on his Twitter @ckirubi, where he gives his largely youthful followers tips on business, success and life.
Here are ten business success tweets in his own words, unedited:
“One of the ways I believe you can find meaning of your life is by creating a strategy that you can use through your journey. You need to keep the purpose of your life, front and center as you decide how to spend your time, talents and energy. Remember that without a purpose, life can be hollow.”
“Visualize your past victories while visualizing and anticipating future victories. Planting the seeds of positive expectancy in your mind is the best way to reap.”
“One of the most important lessons that has made me be a better employer and businessman is pointing out people’s strengths. I have come to learn that the praise of others may be of use in teaching us, not what we are, but what we ought to be. Enjoy your afternoon.”
“If you understand an idea, you can express it so others can understand it. However, if you can’t explain it, you don’t really understand it; and you cannot invest in a business you don’t understand. So friends, do your research well and understand the idea or concept you want to execute before investing in it.”
“I arise in the morning torn between a desire to improve the world and a desire to enjoy the world. This makes it hard to plan the day…but because I want to achieve my purpose and make a difference in society, I will stop focusing on the frightful things I see when I take my eyes off my goals and instead fix them there. With that said, I’m off to my meeting.”
“One of the most important lessons I have come to learn over the years is that you can’t do today’s job with yesterday’s methods and be in business tomorrow. You must keep learning new methods and ways of doing things to keep abreast with the world’s ever changing trends.”
“Business is always a struggle. There are always obstacles and competitors. There is never an open road, except the wide road that leads to failure. Every great success has always been achieved by fight. Every winner has scars….The men who succeed are the efficient few. They are the few who have the ambition and will-power to develop themselves. So choose to be among the few today.”
“Whatever opportunity you decide to take should be in line with your vision. When I look at the opportunities that come my way, I often ask myself, will it add value to a business or individual? If I cannot add value or contribute to some sort of growth then I will not take it.”
“To prosper soundly in business, you must satisfy not only your customers, but you must lay yourself out to satisfy also the men who make your product and the men who sell it…So if your not doing too well in business, you should consider the above.”
“One of the most important lessons I have come to learn over the years is that you can’t do today’s job with yesterday’s methods and be in business tomorrow. You must keep learning new methods and ways of doing things to keep abreast with the world’s ever changing trends.”

lets keep tweeting @bursar

...TOWARDS MEDIUM INCOME ECONOMY FOR AFRICAN COUNTRIES

In the last 20 years, China has emerged as the world’s largest factory and is changing the nature of world economic order. It has become the 2nd largest economy in the world and it is believed that in the next 30 years, it may surpass the US. The growth in China has led to increased wealth among Chinese.
This trend of economic transformation has taken place through many countries in Asia and now in Sub-Saharan Africa and Africa as a whole. Many Africa continues are being left out in the transformation process though it is taken as the area where the next growth will come from.
Basically, Sub-Saharan Africa continues to be a place of risk of business characterised by poverty, ignorance and disease. Countries that have transitioned from poor to medium income or even high income have grown their economies by over 8% per year over a period. Africa has a natural wealth enterprising people and should be poised to grow. Unfortunately, this is not taking place.
The absence of growth is now attributed to factors including governance, cultural institutions besides economic policy. Will Africa transit from low income to medium economies?……………….and being a loyal Kenyan, will Kenya (with Nairobi being an African hub) transit from low income to medium economy country??

FINANCIAL LITERACY, ILLITERACY and PERSONAL FINANCIAL MANAGEMENT

Am privileged to have my ‘shosh’ alive. She is now over 90 years old. Lively and energetic. We usually have our granny-son moments when she narrates to me about life in the 1930’s. when bread cost 10 cents, unga wa ngano 50cents and the monthly salary about 20 bob; enough to feed the whole family, save and invest amicably. We also discuss modern economy; to the best of her knowledge.
Shosh’ amazes me! She is one lady who will just sit down beside the road and sell avacadoes, bananas or some other stuff. She never earns a loss. Infact, she earns profits enough for her upkeep. She never did accounting or finance! To her,accounting is vision 2030. Unfortunately, by then she will be dead,sorry to say. She cant debit or credit any transaction formally in accounting records. But the point is she does make profits.
Basically, accounting is a standard method of recording and reporting business activities. It may also involve book-keeping. Shosh does her accounting in her own way,a simplified way. I usually find it difficult to explain basic accounting and financial concepts and  principles to her. For instance, how on hell can she  get to understand the ‘NSE All Share Index(NASI), the NSE20 share index, market capitalization and all that other business jargon!! She has debts! But how can she understand that we pay our debts as late as possible and collect our money as early as possible?
I wish to classify people into 2: FINANCIALLY LITERATE AND FINANCIALLY ILLITERATE. By financial illiteracy, I don’t mean you never went to class. No! Rather, I mean guys whose profession is not money related; who have never been to a formal business class. These business courses am referring to include CPA, ACCA, B.com, Economics, Finance and other related courses.
A research have been doing reveals that there exist a significant difference in fund management for the 2 categories above.(NB. Study is done to respondents in the same industry, same age group and fairly equal salaries but different professional background to avoid bias). Whether literate or not, someone need to make decisions on different issues. Some critical decisions to be made include: SAVING, PENSION SCHEMES, BUYING(price comparison), INVESTING, DEBT MANAGEMENT and MAINTENANCE OF EMERGENCY FUND.
Financially literate people generally manage their funds better in the case of the above aspects except in debt management(repayment). This is justifiable! They say…’ pay your debts as late as possible and collect our money as early as possible’. They understand very well that paying debts early is opportunity cost to investing…they would rather hold such debt a little longer to speculate investment opportunities.
People have increasing to take individual responsibility for their financial affairs unlike in the past when the governments provided basic necessities like education, provision of heath care and even subsidized food prices. This calls for skills that can be obtained through financial education. The cost of education, in Kenya for example, even though the government introduced free primary and secondary education, the reality is that the parents still bear the burden of most requirements.
Financial problems resulting from poor personal financial management is known to affect individual productivity at the workplace. Over-indebtedness, overspending, unwise use of credit, bad spending decisions, poor money management and inadequate money to make ends meet are problems often related to financial illitarecy. financial education aimed at equipping people with personal financial management skills is very crucial.
Financial Literacy is the ability to make informed judgments and to take effective actions regarding the current and future use and management of money. Financial literacy includes the ability to understand financial choices. For example, the ability to compare offers before applying for a credit card, having a current and savings accounts, having a book keeping system, planning for the future like saving or investing for long term goals like education, home, vacation etc. Financial literacy also calls for wise spending. This means preparing budgets, tracking expenditures etc. Financial literacy affects financial decision making. Ignorance about basic financial concepts can be linked to lack of retirement planning, lack of participation in the stock market, and poor borrowing behavior.
Bottom line; the first step in good fund management is equipping yourself with basic financial education, whether formal or informal, it doesn’t matter.

OPTIONS (Basics about Options)

The first Accounting for Equities class I attended years back when I was in college pricked my curiosity to research more and write about options. Nowadays, many investors’ portfolios include investments such as mutual funds, stocks and bonds. But the variety of securities you have at your disposal does not end there. Another type of security, called an option, presents a world of opportunity to sophisticated investors.
An option is a very common term in finance. It refers to a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price (the strike). The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction. The price of an option derives from the difference between the reference price and the value of the underlying asset, commonly a stock(share), a bond, a currency or a futures contract, plus a premium based on the time remaining until the expiration of the option. Other types of options exist, and options can in principle be created for any type of valuable asset.
An option which conveys the right to buy something at a specific price is called a call; an option which conveys the right to sell something at a specific price is called a put. The reference price at which the underlying asset may be traded is called the strike price or exercise price. The process of activating an option and thereby trading the underlying asset at the agreed-upon price is referred to as exercising it. Most options have an expiration date. If the option is not exercised by the expiration date, it becomes void and worthless.
In return for assuming the obligation, called writing the option, the originator of the option collects a payment, the premium, from the buyer. The writer of an option must make good on delivering (or receiving) the underlying asset or its cash equivalent, if the option is exercised.
An option can usually be sold by its original buyer to another party. Many options are created in standardized form and traded on an anonymous options exchange among the general public, while other over-the-counter options are customized ad hoc to the desires of the buyer, usually by investment banks .
Every financial option is a contract between the two counterparties with the terms of the option specified in a term sheet. Options usually contain the following specifications:

• whether the option holder has the right to buy (a call option) or the right to sell (a put option)
• the quantity and class of the underlying assets
• the strike price, also known as the exercise price, which is the price at which the underlying transaction will occur upon exercise
• the expiration date, or expiry, which is the last date the option can be exercised
• the settlement terms, for instance whether the writer must deliver the actual asset on exercise, or may simply tender the equivalent cash amount
• the terms by which the option is quoted in the market to convert the quoted price into the actual premium – the total amount paid by the holder to the writer

Types of options      
Exchange-traded options
Exchange-traded options/listed options are a class of exchange-traded derivatives. Exchange traded options have standardized contracts, and are settled upon fulfillment guaranteed by the credit of the exchange. Since the contracts are standardized, accurate pricing models are often available. Exchange-traded options include:

• stock options
• bond options and other interest rate options
• stock market index options or, simply, index options and
• options on futures contracts
• callable bull/bear contracts

Over-the-counter
Over_the_counter options/dealer options are traded between two private parties, and are not listed on an exchange. The terms of an OTC option are unrestricted and may be individually tailored to meet any business need. In general, at least one of the counterparties to an OTC option is a well-capitalized institution. Option types commonly traded over the counter include:

1. interest rate options
2. currency cross rate options, and
3. options on swaps or swaptions

Option styles
Naming conventions are used to help identify properties common to many different types of options. These include:

• European option – an option that may only be exercised on expiration.
• American option – an option that may be exercised on any trading day on or before expiry.
• Bermudan option – an option that may be exercised only on specified dates on or before expiration.
• Barrier option – any option with the general characteristic that the underlying security’s price must pass a certain level or barrier before it can be exercised.
• Exotic option – any of a broad category of options that may include complex financial structures.
• Vanilla option – any option that is not exotic.

Advice to potential investors
Despite what anybody tells you, option trading involves risk, especially if you don’t know what you are doing. Because of this, many people suggest you steer clear of options and forget their existence.
On the other hand, being ignorant of any type of investment places you in a weak position. Perhaps the speculative nature of options doesn’t fit your style. No problem – then don’t speculate in options. But, before you decide not to invest in options, you should understand them. Not learning how options function is as dangerous as jumping right in: without knowing about options you would not only forfeit having another item in your investing toolbox but also lose insight into the workings of some of the world’s largest corporations. Whether it is to hedge the risk of foreign-exchange transactions or to give employees ownership in the form of stock options, most multi-nationals today use options in some form or another.